CUNA Regulatory Comment Call

September 20, 1999

Internal Revenue Service Pilot of Electronic Delivery of Taxpayer Information

The Internal Revenue Service (IRS) requests comments on the introduction of an Electronic Transcript Delivery System
(the "Pilot), which would allow taxpayers to request that the IRS give their information to third parties, such as
financial institutions. Only financial institutions in California will be able to participate in the Pilot. However,
other credit unions may want to comment because the IRS currently receives two million requests from taxpayers requesting
that their tax information be sent to third parties (e.g. financial institution to verify income for loans) and the Pilot
may be implemented nationwide. IRS requests public comment on the privacy, authentication, and security measures of the
Pilot. The IRS must receive written comments on or before October 13, 1999. Please submit your comments to CUNA by
October 6, 1999, by fax at 202/371-8240 or by e-mail to CUNA's Assistant General Counsel Michelle Profit. You may access a copy of the notice on the Internet. You may also
be able to access a draft request for proposals for credit unions interested in participating in the Pilot at.

BRIEF BACKGROUIND

The Internal Revenue Code allows a taxpayer to obtain his/her tax return or any return information held by the IRS. A taxpayer may also designate a third-party recipient to receive the return or return information. A taxpayer uses the following process to have the IRS send his/her information.

The taxpayer completes, signs and dates Form 4506 and mails it to the appropriate IRS Service Center.

The IRS receives this form, routes it internally, and retrieves the requested tax information.

The IRS mails the requested tax information to the taxpayer or to the third party designated by the taxpayer.

The IRS estimates that its receipt, processing and retrieval of the return information for a third party takes approximately 7-10 days, excluding the time the information takes to be mailed.

The Pilot would electronically automate the current system and possibly reduce the turnaround time to 24 hours. In the
Pilot, the IRS will recruit 100 businesses (Contractors) to participate through a 30-day Request for Proposal (RFP) process
and award renewable, one-year contracts to these participants. Contractors may have to pay a user fee. To participate,
Contractors must be in the state of California; must be a financial institution, tax practitioner, mortgage business,
credit bureau or credit reporting service; and perform income verification for loans, grants or subsidies or provide
resolution to tax problems or issues.

Contractors will be required to purchase, lease or rent hardware equipment and software systems to be specified in the
RFP. They must pay for their own training at a structured two-day class to be held at the IRS Service Center in Fresno,
California. Contractors are also responsible for providing several reports to the IRS. The reports must contain the
Contractor's experience with the hardware and software system, the quality of training, the assistance provided by the IRS,
and the usefulness of the IRS User's Guide. Contractors will also be required to complete a form that captures statistical
data on discrepancies of income reporting. This will require the Contractors to track and record the number of requests
processed, the number of discrepancies from the information provided by the taxpayers and the number of loans that were
declined based on the data provided by the Pilot. None of this information will identify individual taxpayers. The IRS
will also conduct a Taxpayer Satisfaction Survey with a random sample of taxpayers who participated in the Pilot and are
unknown to the Contractors.

The IRS will require all Contractors to adhere to the following rules for tax return information: 1) keep it
confidential; 2) use it solely for the purposes directed by the taxpayer; 3) store it in locked containers when not in use;
4) discuss tax return information only for business purposes related to the taxpayer's application; and 5) forego further
disclosure, trading, bartering or selling of tax return information without the express authorization of the tax payer.
The contractor would have to obtain another authorization form from the taxpayer for further disclosures.

QUESTIONS REGARDING THE PROPOSAL

What would be the best vehicle to deliver this product (e.g., encrypted Internet, encrypted e-mail, encrypted modem
with digitized signature pads etc.)? Why? Which vehicles would be most accessible to the credit union industry? How
would these methods safeguard taxpayer data?

Does your credit union expend much effort on income verification during the year? How much? Is there common knowledge
and use by credit unions of the IRS' Form 4506 and the ability to receive a copy of a paper return, return transcript, W-2
or verification of non-filing?

What do you see as the advantages or disadvantages of the automated electronic pilot? Do you support it or oppose it?
Do you have any suggestions for improvements?

Please comment on the IRS anticipated 24-hour turnaround of the automated system versus the current seven to ten day
process. What advantages would credit unions have if the information were available in a "real time" on-line basis?

Please comment on how credit unions and/ or other industries would be able to regulate themselves regarding the
safeguarding of sensitive taxpayer information? Are additional regulations or enforcement procedures needed? What privacy
procedures do you as the credit union have and under what regulations?

What would credit unions identify as an appropriate consequence for any mishandling, misuse or unauthorized disclosure
of tax return information by a third party that requires the taxpayer information to process a loan, grant or subsidy or
resolve a tax issue?

Would credit unions be amenable to paying a user fee for this accelerated service? If so, what would you see as a
reasonable charge for this service?

Please comment on the types of written reports and statistical accounting required by the pilot participants.

Please comment on the draft RFP (Draft Request for Proposals TIRNO-99-R-0043) at the IRS' website including input on contractual boundaries, rules and
regulations.